SPX’s technical trend and momentum have begun to turn higher following a choppy six-week consolidation since early December 2024. In recent days, Treasury Yields have shown evidence of turning lower, market breadth has improved, along with the Financials sector having broken out. The combination of these, along with sentiment having turned more pessimistic in recent weeks, is a good recipe for a coming move back to new all-time highs. At current levels, the hourly Elliott-wave pattern for SPX helps to give confirmation that the 1/13 low likely should not be undercut in the month of January. However, it’s also likely that this move won’t rally straight back to new highs without a three-wave period of consolidation, which might occur next week. Thus, while some backing and filling could occur over the next week following the five-wave advance from 1/13, it likely won’t undercut 5900 before beginning a larger rally back to new all-time highs.
A few meaningful developments have occurred in recent days:
- Treasury yields have begun to peak out.
- Short-term market breadth has begun to rebound.
- Sentiment has turned even more negative ahead of the upcoming Inauguration.
- Financials sector has broken out.
Friday provided the necessary structural progress, which had been mentioned to have more confidence of a push to new highs into February.
This appears to be good news for “Market Bulls” and suggests that markets are entering a time when Equities as well as Treasuries should enjoy a much-needed bounce.
While it was difficult this week to make a technical case of a rally given the ongoing consolidation, the formation of an Elliott-based five wave advance from 1/13 along with the positives mentioned above are helpful towards thinking the lows are likely in place.
I expect that SPX likely could stall out Monday at levels near 6021, but one can’t rule out a bit higher to early January peaks. Thereafter, a 38.2% -50% retracement should get underway which should make SPX quite attractive on any weakness down to 5900-5925.
Following some consolidation, I expect a strong rally which might be led by Industrials, Financials, and Technology as Semiconductors begin to strengthen again after a lengthy period of choppy trading.
The ideal pattern into next week should play out as this hourly chart illustrates below.
S&P 500 Index
Semiconductor stocks also should be on the verge of strengthening, and SMH should break out in late January
Semiconductor stocks have begun to “come back to life” at a time when other parts of Technology, such as Tech Hardware, have underperformed (given AAPL’s decline).
In the short run, I suspect that Semiconductor stocks might prove to be the best area within Technology given SMH’s recent outperformance over both AAPL along with IGV -1.95% .
The VanEck Semiconductor ETF, shown below, is in a similar range-bound period of consolidation as the SPX lately; However, SMH has been range-bound since last October.
The gains in recent days are technically bullish towards thinking that Semiconductor stocks should be making a comeback.
Technically speaking, there looks to be some near-term resistance from $261-$263. This equates to roughly 5350-5381 in the Philadelphia Semiconductor Index (SOX).
So, the pattern in SMH is not unlike the SPX index pattern. Near-term progress has improved the likelihood of a breakout which carries both SMH and SPX higher into mid-February.
Ideally, this should play out as prices stalling temporarily at resistance, followed by some backing and filling. Thereafter, a pushback to new highs should get underway.
Areas where SMH would be attractive lie near $251-$254 on any weakness next week. Thereafter, a daily close above 1/7/25’s peaks at $263.58 would have little technical resistance until $283, a level that approximates the peaks from last July.
Overall, I believe a very positive week has occurred. Now pullbacks should spell opportunity and investors should watch closely for evidence that breakouts are getting underway.
VanEck Semiconductor ETF
AMAT and other Semiconductor Cap. Equipment stocks have begun to rally sharply
Some of the Semi-cap Equipment stocks have had unusually hard hits in recent months.
This looks to be coming to an end as stocks like AMAT 1.37% , ASML 0.04% , KLAC 0.33% , and LRCX 1.72% have all engineered strong technical breakouts this past week.
This looks to be an important part of the process for Semiconductor stocks, as a sub-sector of Technology, to bottom out and begin strengthening.
Overall, AMAT is technically attractive for gains over the next month, which might help this get to $210 initially. Investors should consider any weakness back down to $178-$180 as making AMAT particularly appealing as a risk/reward over the next month to play “catch-up” to the emerging rally getting underway in Semiconductor stocks.
Applied Materials
Equal-weighted S&P 500 has been outperforming ^SPX -0.48% for the last two weeks
Some interesting Sector rotation has been playing out in recent weeks that has favored Equal-weighted SPX showing strong performance.
Financials made a convincing breakout this week. Moreover, stocks like AAPL 0.33% have served as a drag on SPX given its recent decline.
Note that this behavior is largely the exact opposite of what has been happening since the election.
Overall, ratio charts of RSP -0.39% vs. SPY -0.48% (Invesco’s Equal-weighted S&P 500 vs. ^SPX -0.48% ETF) show that RSP has begun to try to bounce in relative terms vs. the SPX.
I suspect this proves short-term only for now, but that another 1-2 weeks of additional outperformance in the Equal-weighted SPX vs. SPY would represent a time to begin to overweight SPX again, given its Technology weighting.
Monthly charts of RSP vs. SPY, which I shared last week, still indicate that a larger bottom for RSP vs. SPY remains about 3 months away potentially (when looking for Exhaustion based on DeMar,k, which might drive this ratio higher).
Thus, while it’s always refreshing to see Equal-weighted S&P begin to show some outperformance, I suspect it proves temporary for now.
My key takeaway is that minor underperformance in SPY vs. RSP should not constitute a reason to avoid Technology. Despite AAPL’s recent underperformance, other stocks like NVDA, MSFT, AMZN, and META have been stabilizing and showing evidence of their ability to rally over the next month (given recent constructive technical formations in all these stocks).
Thus, one should still consider Technology an Overweight, along with Large-cap Growth at this time. Underperformance in SPY vs. RSP should prove temporary only at this time.
RSP/SPY
